Is Poverty Down?

It’s well known that the economy hasn’t been working for a large percentage of the middle class and majority of the lower class because real wage growth has been practically nonexistent in most sectors of the economy despite the labor market showing strength suggesting that there is not enough labor available to fill demand. On the positive side, wages earned in 2018 give the consumer much more value because of technological advances. Due to improvements in medicine and technology and overall quality of life, few people would rather live in the past than the present. Even though labor doesn’t have a high share of total wealth, the overall workers earning poverty-level wages has fallen.

As you can see from the Economy Policy Institute chart below, the share of American workers earning poverty wages reached a record low in 2017.

Poverty Wages

Source:  Economic Policy Institute

The share declined from 17.3% in 1986 to 11.4% in 2017 despite the decline in the number of labor unions. The advancement of women in the workplace is evident as the share of women earning poverty level wages has declined from 23.2% in 1986 to 13.5% in 2017. To be clear, a poverty level wage is pay that would leave a full-time worker below the federal poverty guideline for a family of their size if the worker is the sole provider for the family. Since population growth has decline in many advanced economies, you need to examine the changes in family size from 1986 to 2017 to understand this data. The change isn’t drastic as the average family size has fallen from 3.21 people in 1986 to 3.14 in 2017.

The Truth Is Less Clear

While the size of households has changed marginally, there is another catch to the chart above which is that the federal poverty line hasn’t increased as much as median income. Dropping the poverty line allows poverty to decrease without real wage gains. To be clear, Americans in poverty are much better off than the poor or even the somewhat well-off people in poor developing countries. That being said, if you think the poverty line should be compared to median incomes, it is too low. The chart below shows the federal poverty line hasn’t increased as quickly as the median family income of a family of four.

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